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Risk Management Module 1

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Robertas Kurakovas
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Risk - Basic Concepts

Risk - Basic Concepts
Risk Management
Risk

Module 1

This lecture

Basic concepts

Managing Risk

A. Classifications of risk

Sources of Risk

Effects of Risks

Risk characteristics

B. Risk decisions

Decision-making

Definition of Risk

Decisions under risk

C. Perspectives on risk

Normative

Risk according to normative perspective

Risk Analysis

Analysis of investment scenarios

Describing and analyzing risk

Rational decisions & risk

Rational choice

The descriptive perspective

One source of heuristics

Decisions & bounded rationality

Prescriptive

Risk Decisions

The Social context of decisions

Framing of a risky decision

Prescriptive process tool

Risk decisions may be analyzed to:

Risk decision Example:

Investment decisions under risk

An example of a capital investment

The context of the decision

DM value assumption

Investment & decision rules

Cash flows

Cash flow analysis

Scenarios in capital investments

Analyzing the following risks

Risky/uncertain cash flows

Analyzing risky cash flows

Describing and analyzing risk

Investment decisions under risk